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In order to form a more perfect monetary union

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Author Info

  • Arthur J. Rolnick
  • Bruce D. Smith
  • Warren E. Weber

Abstract

Why did states agree to a U.S. Constitution that prohibits them from issuing their own money? This article argues that two common answers to this question—a fear of inflation and a desire to control what money qualifies as legal tender—do not fit the facts. The article proposes a better answer: a desire to form a viable monetary union that both eliminates the variability of exchange rates between various forms of money and avoids the seigniorage problem that otherwise occurs in a fixed exchange rate system. Supporting evidence is offered from three periods of U.S. history: the colonial period (1690–1776), the Revolutionary War (1776–83), and the Confederation period (1783–89). This article is adapted from a chapter prepared for a forthcoming book, Varieties of Monetary Reforms: Lessons and Experiences on the Road to Monetary Union, edited by Pierre Siklos, to be published by Kluwer Academic Publishers.

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Bibliographic Info

Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

Volume (Year): (1993)
Issue (Month): Fall ()
Pages: 2-13

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Handle: RePEc:fip:fedmqr:y:1993:i:fall:p:2-13:n:v.17no.4

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Related research

Keywords: Banks and banking - History ; Money theory;

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Citations

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Cited by:
  1. Russell W. Cooper & Hubert Kempf, 2000. "Designing Stabilization Policy in a Monetary Union," NBER Working Papers 7607, National Bureau of Economic Research, Inc.
  2. Barry Eichengreen, 2008. "Sui Generis EMU," NBER Working Papers 13740, National Bureau of Economic Research, Inc.
  3. Hugh Rockoff, 1999. "How Long Did It Take the United States to Become an Optimal Currency Area?," Departmental Working Papers 199910, Rutgers University, Department of Economics.
  4. Peter L. Rousseau, 2009. "Monetary Policy and the Dollar," NBER Working Papers 14993, National Bureau of Economic Research, Inc.
  5. Farley Grubb, 2003. "Creating the U.S. Dollar Currency Union, 1748–1811: A Quest for Monetary Stability or a Usurpation of State Sovereignty for Personal Gain?," American Economic Review, American Economic Association, vol. 93(5), pages 1778-1798, December.
  6. Grubb, Farley, 2004. "The circulating medium of exchange in colonial Pennsylvania, 1729-1775: new estimates of monetary composition, performance, and economic growth," Explorations in Economic History, Elsevier, vol. 41(4), pages 329-360, October.

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